After the first two movies picked up a total of six mainly minor Oscars in the last two years, the emotional finale "Return of the King" finally grabbed top honors.
"It's an incredibly proud day to be a New Zealander, to see 'Lord of the Rings' sweep the field ... it was simply amazing," gushed the country's normally austere Prime Minister Helen Clark. "It is just blowing everyone away."
About 750 movie buffs, some dressed as Hobbits, others as the fearsome Ring Wraiths, packed into a movie theater in Wellington, Jackson's home town, to watch the 76th Academy Awards ceremony on the big screen — and they were rewarded with an almost unprecedented procession of Oscars as the film won every one of the 11 categories it was nominated in.
They stamped, shouted, cheered and wept as the awards kept rolling in throughout Monday afternoon New Zealand time, ending with two huge roars as Jackson won the Best Director award and "Return of the King" won Best film.
"I'm absolutely stunned," said Wellington Mayor Kerry Prendergast. "I've had to wipe a few tears away with every Oscar. It's wonderful for our ... country, not just for creativity and innovation but also the genius of the people involved."
The trilogy has already pumped millions of dollars into the New Zealand economy, mainly through soaring numbers of tourists flying into the picturesque nation of four million to visit film locations — even though only one location still shows any sign of filming.
Tourism Minister Mark Burton said the "unbelievable achievements" of Jackson's film would continue building on the growing tourism interest in New Zealand.
"This will cement in a perception of New Zealand as ... a high quality and creative place to visit, against that backdrop of pristine environments international visitors are familiar with," he told The Associated Press.
After the first two installments of the "Lord of the Rings" trilogy were shut out of major awards, "Return of the King" matched the record 11 wins of "Titanic" and "Ben-Hur" and became only the third movie to sweep every nominated category, following "Gigi" and "The Last Emperor," which both went nine-for-nine.
As winner after winner approached the podium in Los Angeles' Kodak Theater to accept their awards and deliver their speeches, ceremony host Billy Crystal quipped: "It's now official. There is nobody left in New Zealand to thank."
Wellington comedian and movie buff Jeremy Elwood said Jackson had finally achieved the recognition he deserved for directing the trilogy.
"It's Peter Jackson's night, it really is — he can finally close the door on it now," he said. "This is the fairy tale ending."
Philip Eastwood, an actor who played a Hobbit in the films also basked in the Oscars' glow in Wellington.
"It's wonderful ... a clean sweep of all the awards we were nominated for, its absolutely amazing," he said.
The only disappointment was that "Whale Rider" star 13-year-old Keisha Castle-Hughes lost to Charlize Theron in the Best Actress category.
But that was washed away by the Rings euphoria.
"It's our wildest dreams ... but I think the fact it did scoop the lot amounted to it being the best picture" of the year, Clark said after watching the top two awards at the Wellington theater. "It's just an unbelievable advertisement for New Zealand."